Amidst a swirling typhoon of controversy surrounding the water industry, water companies have allegedly requested even higher increases to bills, and the fallout of Ofwat’s response to this could potentially lead to the regulator being overhauled or scrapped entirely.
After resisting a request for significant price hikes in July, ten of the 11 companies ultimately responsible for water supply and treatment in the UK have apparently requested even higher rates, with Southern Water asking for an 84 per cent increase by 2030.
The request, amidst the announcement of the largest independent review of the sector since its privatisation in 1989, comes at a fraught time for the sector and the regulator, when public trust in the water industry is at an all-time low.
Ofwat is caught in an impossible situation, with claims at one side that they need to do more to protect water companies when the biggest of the lot is staring down the barrel of bankruptcy and a Special Administration Regime, whilst at the same time seeing pressure from the public and government not to do something seen as passing fines to consumers.
Good Money After Bad
In July, Ofwat made a provisional announcement that from 2025 to 2030, water bills would increase by an average of 21 per cent, or £19 per year.
This figure varies wildly by region, but to all of the water companies it was seen as not enough, being almost half of what was requested, and less than half of what has been requested in October 2024.
The companies that requested the most were Southern Water, which wanted an astronomical 84 per cent price increase, and Thames Water, which requested a 53 per cent bill increase but also noted in August that it needed a 59 per cent increase just to survive.
The argument the water companies have made is that the added requests and responsibilities, both civil and criminal, that water companies need to manage means that they need more money to upgrade their infrastructure, water networks and treatment protocols.
The increases are also said to be needed to help pay for additional energy bills and responses to incidents such as leaks and contamination.
The final argument is that the increased bills are needed to attract outside investors who are, according to the industry and its spokespeople, necessary to pay for the required upgrades.
This has put Ofwat in a difficult position; bill increases are in the best interests of the industry in the short term, but after decades of the same story, businesses, the general public and politicians have become rather understandably jaded at the industry and of Ofcom’s ability to adequately regulate it.
Rewarded For Failure
The original requests for increased bills seen in May and June were seen as a brazen act of arrogance of an industry perceived by the general public to have completely failed in their duty of care, and thus a request for even steeper bills after record-breaking fines has gone down about as well as one might expect.
After Ofwat levied record-breaking fines on several water companies following failures to manage their wastewater treatment centres, leading to the illegal operation of storm overflows that dumped raw sewage into areas of natural beauty, allowing the companies to pay those fines through higher bills would be seen as rewarding contemptuous failure.
Many of the failings, fines and financial catastrophes faced by the various water companies,
particularly Thames Water, are ones that were caused by their own hand, with money that should have been reinvested into infrastructure improvements taking out of the business in the form of bonus payments and dividends to shareholders.
Whilst Thames Water appears to be able to survive the year thanks to a £3bn loan by Castle Water, its nearly £18bn in debt was one that they brought on themselves during their period of ownership by Macquarie.
However, even this rescue deal might be under threat, as a second £3bn rescue plan tabled by a second set of creditors could potentially lead to boardroom conflicts and wasted time right at the point where Thames does not have any.
At the same time, Ofwat themselves could be under threat of being scrapped. Having been criticised as a soft-touch regulator for years, a massive increase in bills could be seen as the last straw and cause a fundamental change in water regulation.
Until Ofwat makes its final decision in December, water prices are in a state of limbo, and the best option for businesses is to check their own water use, reduce waste and see if they can switch some of their utilities to cheaper companies.
